GlobalWafers Co., Ltd. (6488) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us. Welcome to GlobalWafers Q2 2026 Earnings Call. I'm Leah Peng, spokesperson of the company, and I'm pleased to join today by our Chairperson, Doris Hsu. Here's how today's event will unfold. Doris will begin with executive comments, providing insights into overall performance and strategic direction. We will then address investor questions received in advance, followed by an open Q&A session. The call will last for 60 minutes and conclude at 5:00 p.m. Before we begin, a quick reminder. To ensure everyone has the opportunity to participate, we kindly ask that each participant limit your questions to two. [Operator Instructions ] Before we begin, I would like to remind you that today's discussion may contain forward-looking statements. Please be aware that these statements are subject to various risks and uncertainties, which could cause actual results to differ materially from our expectations. Please refer to the safe harbor notice in our presentation. Now without further delay, I would like to pass the floor to our Chairperson for the executive comments on GlobalWafers. Doris, please.

3 Thank you, Leah. Good afternoon, everyone. Thank you very much for joining GlobalWafers Q2 2026 Earnings Call. Leah, our spokesperson, will walk you through the presentation and address some of the frequently asked questions we have received recently. I will also take questions during today's session. First, allow me to share our latest observation on the semiconductor market and provide further details on our operating performance this quarter and several important recent developments. Since our last earnings call in May, we have become more positive on the midterm to long-term semiconductor outlook. AI and high-performance computing demand continues to grow. While customer inventories are returning to healthier levels, demand is also improving across industrial, power management, memory and other mature node applications. We see AI as more than a short-term infrastructure cycle. It is rapidly entering work, daily life and physical applications, reshaping how business and industries operate. As AI expand from centralized cloud infrastructure to edge computing, smart devices, Agentic AI and physical AI, computing demand and semiconductor applications will continue to broaden, creating stronger long-term growth. At the same time, advances in advanced packaging, HBM, silicon photonics and process nodes are increasing wafer usage and packaging and technical requirements. This is driving demand for high purity, high flatness, low defect and specialty wafers, supporting long-term growth in silicon wafers, SOI wafers and other high-value products. Recent market improvements is already reflected in our operation, excluding new capacities, our 12-inch lines, 8-inch lines, 6-inch lines, GaN-on-silicon lines are almost fully loaded. And our silicon carbide utilization is improving very -- utilization rate is improving very rapidly as well. This shows that the recovery is expanding from AI and advanced applications to more wafer sizes and end markets. Our Japan operations also delivered very good result. The Niigata plant achieved a record quarterly revenue in the second quarter of 2026, while its June and first half revenue were the second highest on record. Meanwhile, the recently expanded Utsunomiya MGL -- Utsunomiya site set new record -- new shipment records for June. The second quarter and the first half -- these results demonstrating that improving demand and new capacity and our long-term global expansion are translating into actual shipments and operating contributions. GlobalWafers is now entering a new stage of growth as new capacity moves into customer qualification and production ramp-up. Our focus now is shifting from construction to qualification ramp-up and investment returns. Our global manufacturing footprint is strengthening supply capability and enabling closer customer support and sustainable long-term growth. While sharing this market and operating updates, I would also like to provide further update on the recent fire incident at our Novara fab in Italy. On July 20, local time, a fire occurred in part of the 8-inch wafer production line -- production area of our Novara Italy operation. We immediately activated emergency response, evacuation and site procedures. Most importantly, all employees were safely evacuated, with safety no injuries or environmental impact. Based on our current assessment, the damage was mainly limited to part of the back-end process area of our 8-inch production line. It did not affect the entire facility or the 8-inch production line. Majority of the process areas and equipment were not directly damaged by fire or heat, providing -- this providing a very important base for our recovery. The newly expanded 12-inch line in Novara was completely not affected and already resumed operations soon after safety checks were completed. Equipment installation, customer qualification and capacity expansion remains on schedule. Core system of our 300-millimeter silicon operation line also remains fully operational. We have begun a global site to restore our operations safely and efficiently. Our goal is not only to recover existing operations, but also to further strengthen safety, resilience and long-term operational capability across all sites. Damage assessment, recovery activities and insurance claims are also underway. The Novara site is insured for property tax and business interruption. So both of these -- our Novara site have both property damage insurance and business interruption insurance, which is expected to partly mitigate the financial impact to us, subject to policy terms and the insurers final assessment. The restart schedule will depend on regulatory approvals, safety inspections and further progress. To support our customers -- to support customer supply, we have already activated our global manufacturing network, cross-site qualification system and backup plans. Products already qualified at other sites will be immediately supported through alternative facilities where possible. For products not yet cross-site qualified, we will work closely with our customers to accelerate validation and capacity transfer. Before the incident, improving demand and production trends supported our expectation of Q-o-Q, quarter-on-quarter revenue growth in the third quarter. This fire -- the fire may cut down this growth. The actual impact will depend on the damage assessment, recovery progress, cross-site support and customer qualification status. Our top priority remains employee safety, orderly recovery and supply continuity. Over the longer term, this event, again, highlights the strategic value of our diversified global manufacturing footprint. Supply chain resilience is built through long-term investment, cross site qualification, technical expertise and cross customer -- close customer collaboration. We are confident in managing this event and continuing to serve our customers with a safer, stronger and more resilient operation platform. Now -- let me walk you through our overall financial performance for the second quarter and the first half of 2026. If you have our presentation materials, please turn to Page 4. GlobalWafers reported second quarter revenue of TWD 15.2 billion, representing an 8.8% increase from the previous quarter. For the first half of 2026 revenue totaled TWD 29.2 billion, while gross profit was TWD 6.1 billion with a gross margin of 20.7% -- please turn to Page 5. For the first half 2026, operating margin stood at 9.9%, while net profit margin was 19.4%, primarily supported by nonoperational gains from the valuation of our investment in Siltronic shares. Page 6, please. EPS for the second quarter came in at TWD 7.9 per share and TWD 11.87 per share for the whole first half, which is over 80%, 80% higher than higher Y-o-Y. Prepayment remained at TWD 20.8 billion, reflecting our continued fulfillment of long-term supply commitments based on customer delivery schedules. We are also discussing long-term supply agreements with multiple customers to deepen partnership and improve future order and business visibility. Page 7, please. Global supply chain shifts are changing customer sourcing priorities beyond quality, technology and cost, customers increasingly value local supply, supply stability, traceability and low-carbon manufacturing, advanced packaging and process technologies evolve, wafer intensity, product specifications and qualification requirements are also rising. However, qualified suppliers with advanced products, a global footprint and low carbon capability remain very limited. GlobalWafers manufacturing sites across Asia, America and European allow us to stay very close to our customers and provide long-term supply solutions combining local production, cross-regional backup, traceability and also low carbon manufacturing. Please turn to Page 8, if you have our material. With existing lines operating at healthy utilization and new capacity moving into customer qualification and mass production. Our focus now is shifting to higher utilization, better efficiency and realizing the long-term value of new capacity. Our manufacturing sites across Asia, America and Europe allow flexibility capacity allocation based on customer locations, demands and qualification progress, supporting more local and resilient supply. We are also expanding SOI SOI wafer, gallium nitride GaN on silicon line and 12-inch silicon carbide, square wafers and other advanced wafer products. Most new and expanded sites focus on high-spec and specialty applications by improving capacity returns. Optimizing global resource and upgrading our product mix, we will continue to strengthen long-term growth and value. Next, I will share our view on demand and across key applications. Semiconductor growth is supported not only by a cyclical recovery, but also by long-term structural trends. AI infrastructure remains the main growth driver, supported by higher capital spending and continued growth in Agentic AI inference and cloud edge integration. Memory supply remains very tight, while long-term agreements provide better demand visibility. Smartphone and PC demand is broadly stable, but AI devices and replacement cycles should increase semiconductor content per device. Industrial and power management should increase semiconductor content should -- demand remains very strong. Industrial and power management demand remains very strong, supporting 8-inch wafer demand. Automotive demand is mixed, but continue to trend upward. ADAS, software-defined vehicles and smart features are increasing semiconductor content and wafer intensity per vehicle. Robotics and physical AI are also driving components demand. Advanced packaging, HBM stacking continue to raise demand for advanced and specialty wafers through more wafer layers, tighter specification and greater process complexity. Overall, AI remains the key structural growth driver, while market improvement is expanding across more applications, this strength our confidence in midterm -- mid- to long-term outlook for the silicon wafer industry or I should put it that way that for silicon and compound wafer industry. With that, I will hand over to Leah to take you through our overall company overview and our financial performance. Leah, please.

Thank you, Doris. I will quickly update GlobalWafers' recent development and answer questions we have received so far. Page 12. AI continues to support long-term industry growth. Since the start of this year, major hyperscalers have raised AI spending, driving expansion in advanced logic, HBM and related capacity. More importantly, AI is expanding beyond cloud data centers into devices and physical applications, broadening semiconductor demand. This investment is translating into steady wafer demand as shown by recovering global wafer shipment. In Page 13, as AI expands from the cloud to edge and physical applications, it will drive further demand for computing, sensing, connectivity and power chips, increasing wafer intensity. These trends align well with GlobalWafers portfolio, advanced computing HBM packaging and the process technologies will drive demand for high-spec 12-inch silicon wafers. Silicon photonics, high-speed connectivity, sensing, AR, automotive and power systems will expand demand for SOI GaN, SiC, advanced Epi and [ polished ] wafers and square wafers, while supporting 8-inch and 6-inch mature node demand. GlobalWafers' broad coverage across wafer sizes, materials and technologies allows us to capture AI-driven demand, improve our product mix and increase product value. Please turn to Page 14. Our global expansion projects continue to advance with customer qualifications and production ramp-up. Our Texas site, GWA has qualified with several Tier 1 customers and continues to optimize process. Key customers' long-term agreement and strategic funding will further strengthen advanced wafer supply in U.S. demand for new 12-inch silicon wafers. And we also have a 12-inch SOI capacity in Missouri and the demand is very strong. Customer sampling continues and several RF SOI and silicon photonics products have entered small volume production. The new 12-inch line in Novara, Italy has completed major construction with initial qualifications progressing well. Production will ramp up with customer demand. New capacity in Utsunomiya, Japan is fully in place. Shipments reached record highs. And while capacity utilization remains high and operating and financial performance continue to improve. We will also apply for government subsidies at each project reach its respective milestones. More importantly, these investments strengthen our competitive edge. Customers now look beyond price to local production, supply stability and closer technological cooperation. As supply chains become more regional, GlobalWafers diversified global footprint is a key advantage. In page 15, advanced packaging, HBM and advanced nodes use more silicon and require tighter wafer purity, flatness, defect control, uniformity and tolerances. As scaling stacking and integration increase, even small wafer variations can affect yield and performance, raising the value and entry barriers of high-spec wafers. GlobalWafers continue to invest in R&D and align with customer road maps. Through capacity expansion, qualification and ramp-up, we are expanding advanced and specialty wafer supply. Our products are advancing through expansion, qualification or commercialization, positioning us to capture high-value growth. Please turn to Page 17 for our Q2 financial highlights. Our Q2 revenue increased 8.8 percentage quarter-over-quarter, driven by higher shipment volume. However, the benefit was partially offset by the ramp-up cost and additional depreciation associated with new capacity, including the commencement of GWA building depreciation in April. Also, higher Siltronic shares price increased our pretax profit and related bonus accruals, while higher freight and energy costs also weigh on our profitability. Despite these cost pressures, stronger shipment and improved capacity utilization supported our earnings growth. Together with higher nonoperating contribution from Siltronic market valuation, our EPS improved to TWD 7.9 per share in Q2. On Page 19, this is our first half performance. Our first half gross margin was 20.7%, down by 5.5 percentage points Y-o-Y. This is mainly reflects pricing agreed during last year's weak market, which has not yet fully captured the recent demand recovery as well as the higher qualification and ramp-up costs at our new sites. Compared with last year, when new sites were mainly under construction and initial equipment installation, more equipment capacity and staff are now in place. therefore, increased validation operating fixed and ramp-up cost. GWA also began recording its building depreciation in April this year, increasing the impact on the first half margin. As customer qualification progress and utilization rises, our cost absorption should gradually improve. Also, the movement in reported earnings were also influenced by nonoperating valuation items related to Siltronic share price fluctuations. GlobalWafers holds Siltronic shares, while our German subsidiary also issued overseas bonds with warrants linked to Siltronic shares. Under IFRS, posted investment and the warrant-related liabilities are mark-to-market. In the second quarter, Siltronic share price rose from around EUR 80 at the end of April, to over EUR 100 at the end of May. This is an increase of more than 30%, therefore, generating substantial unrealized valuation gains. However, the share price subsequently declined to approximately EUR 82 by the end of June. This is a drop more than 20%. This not only reduced the fair value gains recognized on the Siltronic shareholding, but also resulted in additional mark-to-market impacts from the warrant-linked liabilities associated with the overseas bonds, therefore, amplified the effect on the second quarter pretax profit and EPS. These valuation changes are noncash in nature and do not affect our operating cash flow. Excluding these nonoperating items, the underlying business continued to improve. Our second quarter revenue grew by 8.8% Q-o-Q, and the June revenue increased by double digit -- increased by 16% MOM, reflecting the strengthening customer demand and higher shipment volumes. And our first half EPS rose to nearly TWD 12 per share. This is 80% higher than first half '25 EPS. Here is our income statement. This table also shows a simulated [ case ], excluding major global expansion projects. Our first half revenue would decrease from the current TWD 29 billion to about TWD 27.5 billion, while gross margin will rise from 20.7% to 32.4%. The current financial pressure mainly reflects the early-stage cost of new capacity which support future growth. These investments are essential to capture rising wafer demand and growth in advanced wafers. As qualifications, production and utilization increase, this benefit will gradually flow through revenue, product mix and profitability. Page 20 shows our balance sheet. At the end of the second quarter, our cash and cash-related assets totaled about TWD 52.9 billion with ample liquidity. Our current equity ratio also improved, respectively, and our debt ratio remained stable. As the global expansion shifts from capital investment to qualification ramp-up, our financial structure is becoming more stable. We will maintain prudent cash management and sufficient financial flexibility to support operations and long-term growth. Now I would like to address both the questions we have received from investors recently and those we anticipate will be raised.

Okay. The first question is about price. How does the company view current supply/demand and pricing trend in the silicon wafer market? Over the past 2 years, the silicon wafer industry has faced pricing pressure. At the same time, rising energy, logistics, raw material and labor costs, together with increasingly demanding product specs and technological requirement for advanced applications have driven up the overall cost structure. More recently, industry supply-demand conditions have gradually improved and the order visibility strength. The demand outlook for the second quarter is meaningfully stronger than that of the first half with broad-based recovery and the strong growth momentum across all wafer sizes. Industrial power management and energy-related applications also continue to recover. Our utilization rate across all silicon, all diameters it remained at a very high level. And again, it is fully loaded and the SiC continues to improve steadily. On pricing, we are actively engaging with our customers. We are communicating openly about the pressures from the above mentioned and communicating openly and fairly. So we aim to gain customers' understanding and support. So as the conditions vary by product and spec, so we do not comment on individual pricing or negotiation progress. So please understand. Okay. The second question is regarding our LTA. What's our LTA current coverage ratio? Has customers' willingness to make LTA commitment increased. Beyond memory customers, are you seeing logic customers entering into new LTA agreements? How do you see the future evolution of LTA in terms of pricing? Due to commercial confidentiality, we are unable to disclose LTA specific coverage ratio. However, as the demand for AI HBM and advanced nodes continues to grow, we are seeing an increasing number of customers actively discussing new LTA with us to secure future supply, capacity assurance and the localized sourcing capability. Recently, we have secured a 10-year LTA with a global customer, and we have received strategic financing support. This agreement represents the longest LTA in our history and reflects customers' commitment to secure a local supply. We have also observed that this trend is no longer limited to the memory segment. An increasing number of customers are actively engaging with us on long-term partnership agreements and with discussion now extending beyond memory applications to include logic and specialty wafer products. Looking ahead, LTA are no longer focused solely on pricing or volume commitments, but are evolving toward longer term and more flexible partnership models encompassing price adjustment mechanism, product optimization, flexibility and adaptability to changing market conditions. The next question is, when will the supply-demand reach balance or even undersupply in silicon wafer space? We believe the supply-demand tightening in the semiconductor wafer industry is already underway and is already happening. We continue to see high utilization rate across our all-diameter production lines, stronger customer order activity, improved order visibility and a growing willingness among customers to secure capacity years in advance. Our recent long-term agreement with customers, 10-year long-term agreement. This is another clear indication of this trend. This development suggests that market conditions are continuing to tighten with supply for certain advanced 12-inch products and applications already become noticeably constrained. While it is difficult to define a specific point at which the entire industry enters undersupply environment, the trend toward a tighter supply-demand condition is already evident and is already happening. The next question is that it is about what do we see the next major growth opportunities in semiconductor materials. From our perspective, the most significant AI-driven opportunities are concentrated in 3 areas. The first is 12-inch silicon wafers. This is the largest source of demand growth, supported by the expansion of advanced process technologies and AI infrastructure. The second is silicon photonics, which has already emerged as one of the fastest-growing applications. We are particularly optimistic about silicon photonics based on SOI wafers. GlobalWafers has established a strong position in the SOI market. our Missouri-based MEMC is the only U.S. supplier with proprietary technology and vertically integrated manufacturing capabilities. and IP-dependent layer transfer technology. So this positions us well to benefit from the rising demand for this high-speed optical interconnects in AI data center. In addition, we also see that AI requires not only computing power, but also efficient power management and energy conversion. As a result, SiC and gallium nitride, which is widely used in power management, power conversion and industrial applications offer substantial long-term growth potential. Overall, we believe that 12-inch silicon wafers represent the largest demand opportunity. Silicon photonics and SOI offer the fastest growth trajectory and the GaN and SiC provides attractive long-term value creation potential. This will be the key growth driver for GlobalWafers going forward. The next question is about GWA. Following the signing of the LTA with the key memory customer. Does this mean that the Phase 2 of your GWA has been confirmed? Okay. Based on the scale of the demand reflected in this 10-year LTA, further capacity expansion is a natural and necessary next step. As we have previously communicated, Phase 1 and Phase 2 of our Texas facility are located within the same building. The overall Texas campus has been planned with 6 phases in total. During the construction of Phase 1, we also complete the building shell for Phase 2, along with most of the shared infrastructure and utilities. As a result, future capacity expansion does not necessarily require constructing a new building. Instead, it will mainly involve additional production equipment and enhanced support infrastructure such as power supply, wastewater treatment and other utility capacities. Compared with the initial phase of construction, future expansion are expected to be significantly more capital efficient and operational accessible. In addition, government incentives, including CHIPS Act support and investment tax credit AMIC are expected to further reduce expansion costs and enhance overall project returns. In other words, our near-term priority is to continue improving the productivity and output of Phase 1 while gradually utilizing the space and infrastructure that were originally reserved for Phase 2. Therefore, we fully expect our capacity to increase over time, and we will execute those expansions in the most efficient and disciplined manner based on customer demand and market conditions. Okay. The next question is about our Novara fire incident. So when do you expect the Novara to resume operations. We are actively conducting damage assessment and recovery planning while leveraging our global manufacturing network to mitigate customer impact through tolling arrangement, under which selected process steps are supported by other GlobalWafers sister sites. Products already qualified for core site manufacturing will be prioritized, while qualification activities for additional products are being accelerated in collaboration with customers. Actually, the incident mainly affected certain downstream process equipment within the 8-inch fab in Italy. It did not impact the entire production line. Therefore, we are implementing a phased recovery strategy, allowing unaffected operations and recovered production areas to gradually resume manufacturing activities. The Epi production building was not affected by the incident at all and all Epi reactors remain intact and are being progressively restored in accordance with the plan. Based on our current process, Epi operations, this could be resumed earlier than our original plan with certain production activities anticipated to restart in mid-August. In parallel, other upstream manufacturing operations are undergoing equipment recovery and qualification activities and will gradually resume production according to the plan. As the incident mainly affected downstream operations, so now we are readying for other sister sites to support selected process steps through tolling arrangement, and we are working closely with customers to accelerate the product qualification and production transfers where appropriate. In addition, except a limited section surrounding the fires point of origin that remains subject to final structural review, the main building has been confirmed safe for recovery activities and recovery work continues to progress as planned as equipment recovery, customer qualification and cross site manufacturing support continue to advance. Production capacity and shipment capability are expected to improve progressively over time. So we will continue to implement recovery and supply chain support measures to restore customer supply chain as efficiently as possible. The next is about our insurance. So how much insurance compensation does the company expect to receive for the Novara fire incident? So we have already initiated the insurance claims process and relevant expert teams have already begun their investigation and assessment. The incident mainly affected certain downstream process areas. So the facility is covered by a comprehensive insurance policy, including both property damage and business interruption coverage. Because the loss assessment and the claims process are still progressing as planned, the key factors, including the cost of incident, the extent of the damage and the period of business interruption remains subject to further evaluation and confirmation by the insurers. The actual claim amount and the timing of any insurance related gain recognition will be determined based on the final assessment results and applicable accounting standards. So the next question is also about the Novara fire incident. What is the expected impact on revenue of the fire? So the incident is expected to have some impact on our operations and revenue. However, the actual magnitude remains under assessment. Given that the utilization rates across our major 8-inch manufacturing sites are currently at very high levels, immediately available spare capacity is limited, and therefore, some impact may be unavoidable. Prior to the incident, we expected the third quarter revenue to be higher than that of the second quarter. Now we are continuing to work toward achieving sequential growth through various mitigation measures. To minimize the impact, we have activated our sister sites and the global manufacturing network. So we are using the site capacity allocation, production transfers and the supply chain coordination to support our customers and to mitigate the loss. Okay. That's the questions I received so far. So now we are open for the tax questions.

Okay. Let me start from some question in Chinese talking about the last conference call, we expect that the depreciation fee this year will be around TWD 12 billion and the second quarter is only TWD 2.4 billion. So does that mean that the second half depreciation cost will be significantly higher than H1? I think the answer is no because TWD 2.4 billion that's for Q2 only. Q1 is another somewhere around TWD 2.3 billion, TWD 2.4 billion, about this range. So the first half is close to half -- close to TWD 5 billion depreciation H1. So H2 will be higher -- slightly higher than H1 because H2 we will have more depreciation for GWA new equipment, new depreciation and also we will have more depreciation from St. Peters SOI as well because our 300-millimeter SOI start ramping up. So we expect that we will have a little bit more depreciation. So the second half depreciation will be higher than H1, but it's not significantly higher than that. It will be very -- just increasing as the production ramp up. So that's the first question. And the second question is what capacity utilization is needed for Sherman Phase 1 to break even. This depends on quite a lot of details, and please allow me to keep this keep this confidential for a while because we are having some pricing structure discussion with some of our customers right now. So there will be some factors which can affect the gross margin breakeven time. One is that the new ASP negotiation. #2 is that if we receive AMIC on schedule or earlier than our expectation, actually, our depreciation costs will reduce as well. So we are working with the related party to try to figure out that how much we can improve our ASP and also we try to figure out that if we can get the AMIC on schedule. So these are the factors. So sorry for not being able to give you more detailed information about this one. And next question is that why 2026 -- second quarter '26 OpEx ratio was high. And will it be a new norm or any reason behind? No, this will not be a new norm. The only reason for that is because Q2, we had a big profit -- a big part of the profits from our Siltronic shares valuation, mark-to-market valuation. And this valuation will pop up our other income. So our margin looks higher because of the valuation. And according to our company policy, we have to recognize to reserve our bonus every quarter. So when the margin based on the margin -- the profit of that specific quarter. So if that quarter profit is high, then we have to reserve higher amount of potential bonus. And this will be true-up every quarter when we finalize our quarterly report, we will check the actual performance, actual profitability and also the updated, especially other income, those mark-to-market valuation numbers. So this will not be the new norm. A matter of fact, our expectation is to reduce our OpEx percentage when the operation is more stable because the volume is -- our revenue volume is increasing. So of course, we have more and more R&D expenses because a lot of advanced ones. But our goal is to remain flat or slightly lower than where we are today. So this will not be a new norm. And next question is, do you believe that the prepayment balance has already bottomed this quarter and could begin to increase from here? I think we have very high confidence that the answer is yes because we have -- as we announced several weeks ago that we signed a 10-year long-term agreement with a very important AI memory company, Micron, and the prepayment link together with that one is over -- is USD 500 million. So we haven't received the money yet. So we are still working on some detailed procedures. So when we receive the money, then our prepayment, I think we will have -- I think now it's the bottom. And not only the LTA we signed, we have already concluded with Micron. As a matter of fact, we are working with several other new customers right now, talking about new LTAs for new products. And our policy is that we still -- whenever we have new supply agreement, we will still follow our rule that we will have prepayment to make sure both parties honor the LTA. So Yes. So I think that now is the bottom, and we will have new LTA -- we will conclude new LTA very soon. Okay. And next is we would like to know the gross margin guidance as well as the depreciation pressure. For gross margin guidance, so according to our company policy, we don't comment too much about the specific number of price or margin. But in general, I think -- and part of the reason it's very hard to comment. As I said, we are working on the discussion with our customer for a new year new year next year's order status. So maybe new price will be discussed and maybe product mix will be different from this year. So there are still a lot of factors, which is not finalized yet. So it's hard to comment the gross margin. But depreciation will keep increasing. This is very sure because quarter-by-quarter, we have more and more tools meet the depreciation criteria. So we have to start to depreciate our tools. So depreciation cost will increase in the next several quarters. That's the current trend. And next one is GlobalWafers continue to benefit from demand driven by advanced process technologies, AI and high-performance computing. Under the same industry trends, how do you think about -- how do you view TSC Taiwan Specialty Chemical? How do you view TSC's current operating performance? I think TSC performance is very good. Matter of fact, they -- up to June, they have already achieved 17 months MOM consecutive record consecutive revenue growth. Chemical, especially chemical itself, I'm not talking about the consolidated revenue together with HJT. So chemical revenue only up to June, already 17 months MOM growth consecutively. And also, TSC is going to make a further capacity expansion for die side and their main product by end of the year. Their current capacity is about 26 tons per year, and they will reach -- they will increase to up to 30 tons per year by end of the year. That's die side and their #1 most important product. And next year, the plan is that by end of next year, they will be able to further increase the total capacity to 40 tons. So they are very aggressive. The reason for this aggressive expansion is that their utilization rate is super high right now. For chemical, their utilization rate is almost at 90%. And for specialty chemical, 90% utilization rate is really very high. So that's why they keep expanding capacity and they keep receiving more and more commitment from customers as well. So that's #1. I think TSC is doing very good revenue-wise. And also from capacity expansion wise, you can see that they are very aggressive. And not only disilane but also some other products like AHF, AHF is a new product, one of the most important new product this year. The capacity is good, but it just start ramping up right now. Although they just started ramping up, they have already made a decision to initiate to kick off the expansion for AHF and for precursor. Precursor is under qualification now. So very soon, the precursor will start ramping up as well. So they have a lot of good things about TSC. Overall performance is very good. Okay. Next question, has the Novara fire affected the 10-year LTA with Micron? No, totally no impact. As Leah and I explained that the incident, the fire incident in Novara is mainly for 200-millimeter and only the back end part of the 200-millimeter. And the other -- even 200-meter, the other parts, basically not much impact. And for 300-meter, that's totally a separate building. So it's not the same building, so totally no impact. And also the Micron LTAs, most of the wafer for that LTA will be from our U.S. operations. So no impact will be -- there will be no impact from Novara incident. And.

What does the economics of newer sites in the U.S. and Europe look like? And how does it compare to existing sites? How does the company maintain its competitiveness? Okay. We believe the competitiveness of new manufacturing facilities should be evaluated based on the overall operating ecosystem rather than any single cost factor. Beyond serving local market demand, our U.S. and European expansion projects were supported by high levels of long-term customer commitments prior to construction and also benefit from government incentives, including the U.S. CHIP Act AMIC or IPCEI in Europe and various -- and there are so many other subsidy programs, which will enhance the overall investment returns. In addition, sustainability has become an increasingly important purchasing consideration for our customers. So renewable energy is more readily available and competitively priced in the U.S. and both our U.S. and Italy facilities are expected to progressively operate on 100% renewable energy once fully ramped. As customers place greater emphasis on localized supply, supply chain resilience, product traceability and low-carbon manufacturing, I think that our diversified manufacturing footprint will provide significant competitive advantage. So as the utilization rates improve and scale benefits emerge, we think that economic performance of these new fabs will continue to strengthen, and this will enhance our competitiveness. Okay. The last question.

Has the recent Kumamoto earthquake in Japan had any impact on TWC's operations? No, no impact. First of all, the Kumamoto, we have one site, Tokuyama is very close to in area, but it's still far away from Kumamoto. So operation for city equipment wise, we're okay. And #2, we check our suppliers in Kumamoto. We have quite some suppliers and customers in Kumamoto area. So from suppliers standpoint, we have enough inventory and our suppliers basically are doing okay. So the supply impact is very minimal and manageable. So basically, we have no impact for supply. But for customers, we do have some customers in Kumamoto area who got some impact. So we work very closely with those customers to provide them a lot of support -- urgent support to ship them some wafer to -- for them to test their equipment. So we're working very closely with them. So basically, no impact with TWC overall operation in Japan. Okay. Next one is, can we know the current utilization rate of each product line roughly? I think I just mentioned this a little bit earlier that 12-inch, 8-inch, 6-inch GaN-on-Silicon SOI, all these lines are fully loaded. Silicon carbide is utilization rate is high, but it's not full but it's getting -- it is increasing. So I believe that silicon carbide will be fully loaded from second half this year as well. I'm talking about the existing fab for the newly established brownfield, greenfield, many of them are under qualification or start ramping up is not fully loaded yet.

Yes. And next question is that is the cost of raw material, what's the price trend? Does it continue to increase? And what is its way to your company's revenue percentage?

Yes. Raw material raw material is increasing. When we calculate our cost, it's MLO material, labor cost and overhead. We always -- we control. We manage our MLO percentage monitor this very closely. And right now, material cost is increasing based on current ASP, material cost, the weight of material cost keeps increasing. For example, as I shared that some raw material like gallium and many other materials are -- the prices are increasing. And our overall freight is increasing as well. So -- and energy cost is increasing. The reason energy cost is increasing is because we use more renewable energy year-by-year. So in renewable energy, is expensive, especially in Taiwan. So our overall energy cost is increasing. So cost is increasing. Percentage-wise, it's a little bit heavier. As I said, this is based on this year current ASP. But when we move to next year, product mix will be different and also maybe different currency, different -- a lot of conditions will be improved. So I believe that next year, maybe the situation will be better than this year. That's our view. Depreciation-wise, depreciation cost will be still high next year.

Thank you. And ladies and gentlemen, the floor is now open for live questions. [Operator Instructions] The first one is Sunny from UBS.

Could you hear me okay?

Hi, Sunny.

So my first question is if I look at...

Hello. Sunny, we cannot hear you.

Sorry. Could you hear me now?

Just one moment. Sunny, sorry, I think there might be some technical issues. So could you please try to tap your question in the slide first and so we can address your question more efficiently.

Sure.

We can hear you. You are back.

All right. Thank you very much for your patience. So if we look at your sales in 2026, then I think it may still be like 10%, 15% below the prior peak in 2022 and 2023 despite the capacity expansion in the last few years and now you are also running close to high utilization rate already. So just want to understand the pricing. And now that the utilization rate are back to higher level and you are negotiating with clients regarding pricing, when should we start to see more meaningful growth for your sales and also hopefully gross margin expansion?

Yes. Thank you for the question. Right? Actually, Q2 revenue already increased Q-o-Q 8.8%. In Q3, if there was no Novara fire, actually would have more higher growth rate than Q2. So our revenue is increasing from this year and better than our annual plan budget. So the growth will. Of course, now because of the incident, the Italy incident, although the impact for the tool equipment is minimum, but the recovery takes a little bit longer time. So there will be some impact. But I think in general, our revenue should be flat or slightly higher than last year. That's the current status. That's because of the fire. Otherwise, we're supposed to have much higher revenue than last year. For the meaningful growth -- revenue growth definitely will be from 2027. If there was no impact from the Novara fire, actually, we're seeing the improvement -- even with the fire, we are still working on a lot of work around maybe we can minimize, mitigate the impact as well. But even a little bit more conservative for the recovery for our revenue, I still believe that starting from '27, we will see meaningful improvement for 2 reasons. One is that I believe that next year, our greenfield and brownfield, especially silicon photonics SOI wafers and advanced GWA 300-millimeter wafer and Novara 300-meter wafers. The new expansions will start contributing more and more revenue quarter-by-quarter, month by month. So that's #1. #1, growth, the source of the growth. And #2 is that we will see Novara 200-meter back to the contribution. And number three is that I hope that because of the cost increase, and I hope that we will be able to improve by product mix or by price increase, I hope that we will be able to improve our ASP. So that's why we believe that starting from next year, we'll be able to see some meaningful revenue growth.